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David Walton’s Untimely Death Shakes Cable

News of the sudden death of MPC official David Walton sent
the Cable significantly lower against theU.S. dollar through the
London session.
As the lone dissenter in the Bank of England’s 7-1vote to keep current overnight
lending rates unchanged, Walton represented the most hawkish voice among his
peers in calling for a 25bp rate hike. With his sad departure, markets now
speculate that the remaining members will be much slower to raise rates than
some had previously hoped. Adding to such sentiment, this morning’s CBI
Industrial Survey report failed to improve on May’s disappointing reading.
Survey respondents said that total orders continued to decline on the month, with the exports
figure dropping from neutral to -3 in June. The economic release highlights the
uncertainty in the future of Bank of England monetary policy, as it comes just a
week after CPI underlined increased inflation risks. Indeed, if important
economic indicators were to show weakness in the face of rising prices, the
central bank would be completely powerless in fighting stagflation. Though this
is at worst a long ways off, traders will pay special attention to the coming
week’s GDP and Money Supply data. Any surprises could see the Pound fall
further off its
yearly highs.

Rumorville

Standing sell orders will reportedly
slow any advance past $1.8315, while bids at the $1.8210 short-term floor will
likely keep Cable relatively stable in coming trading. Any further decline would
likely see at least a momentary rally through profit-taking on short
positions.

NZDUSD

Current Account Deficit Worst in 30
Years

The New
Zealand 1Q Current Account Deficit ballooned to its worst
showing in 30 years, sending the NZ Dollar into a nosedive against its
U.S. namesake. Now representing 9
percent of GDP, the NZ$14.54 billion gap in net flows cast doubts on the small
economy’s ability to pay off international debts. Indeed, touting the highest
central interest rate of any country with a top S&P sovereignty rating, a
large current account deficit poses a challenge to government agencies looking
to settle foreign obligations. The bearish news not only fueled a sell-off in
its currency, but it also led many to speculate that the small island country
could lose its top S&P rating. It is perhaps too early to call for such a
move,but a downgrade would most
likely spark a significant divestment in New Zealand bonds. This could only help the
U.S. dollar, which has strengthened
this past week as investors snubbed other currencies for the safety inherent to
investing in the world’s largest economy. With New Zealand 1Q GDP growth data due at 22:45 GMT,
Kiwi traders brace themselves for further volatility on the potential for
further bearish news.

Rumorville

The NZDUSD triggered stops below $.6093
before finding bids just under $.6080. The currency pair now hovers around
$.6090 with rumors of bids at the $.6060 barrier.

AUDUSD

AussieFallsWith Kiwi on Weak Data

The Australian dollar fell in tandem with the Kiwi
following the weak New Zealand Current Account data. The sympathetic
drop was likewise exacerbated by falling interest rate differentials against
other major currencies. Recent interest rate hikes by other major central banks
has narrowed interest rate spreads on the Australian
dollar currency pairs. Given its status as a preferred carry-trade beneficiary,
any contraction in its rate advantage causes sell-offs in the currency. Thus the
Australian dollar may have to
depend on strength in world commodity prices in order to reverse its two-month
skid. As the world’s second largest gold producer, Australia has seen significant
currency depreciation on recent weakness in gold prices. Though the commodity’s
price has recently rebounded, a slight drop on the day nudged the Aussie dollar
to as low as AU$.7322. Looking forward, traders now await tonight’s
New
Zealand GDP figures.
Otherwise, the Australian dollar will continue to be at the mercy of world
commodity prices as the national economic calendar remains barren until next
week’s housing data.

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